LIVE MARKETS-Gold options hit crisis-era levels as price tanks

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GOLD OPTIONS HIT CRISIS-ERA LEVELS AS PRICE TANKS

Gold's parabolic ascent to a record $5,594.82 an ounce over the last few weeks is getting a reality check. It's down around 6% today and heading for its biggest one-day fall since April 2013. The catalyst: the likely confirmation of former Federal Reserve Governor Kevin Warsh as President Donald Trump's likely pick to lead the central bank once incumbent Jerome Powell steps down in May.

Warsh has a reputation as something of a policy hawk. He's said a number of times the Fed should shrink its balance sheet - something that would push up market-based borrowing costs - and the rising chances of his appointment have seen long-dated Treasury yields and the dollar spike, while precious metals, crypto and U.S. stock futures are getting hit.

Gold's drop pales in comparison with the 14% slide in silver XAG=, which is heading for its largest one-day drop since August 2020. Silver's rally has been even more extreme, with the price having doubled in two months, as investors have piled into liquid assets other than the dollar.

The options market was already sending a distress signal before today's precious metals selloff. One-month gold implied volatility, which is running at about 38%, the most since the financial crisis of 2008/2009, is at its biggest premium to one-month realised vol stretching back to the start of Reuters records in 2007.

Implied vol, which broadly reflects investor demand to hedge against potential big swings in an asset's price in the future, tends to be naturally higher than realised vol - how much a price has already moved. But a blowout in this gap often materialises in times of market crisis. Large spikes in the past happened in 2020, during COVID market turmoil and in late 2008, after the collapse of failed investment bank Lehman Brothers, as the financial crisis rumbled on.

(Amanda Cooper)

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